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The 800-megawatt unit would have been an addition to an existing coal plant in Limestone County near Buffalo, and had drawn opposition from environmentalists.

The New Jersey-based power producer told the Texas Commission on Environmental Quality last month that it no longer needed environmental permits since it does not plan to proceed with the $1 billion project.

The proposed new unit at NRG’s Limestone generating station would have been too costly compared with the potential of a plant running on cheap natural gas, said John Ragan, president of NRG’s Gulf Coast region.

Coal generation units are more expensive to build than those that burn natural gas, but they have been economic in the past when coal was cheaper than natural gas, Ragan said.

That price advantage has disappeared recently as natural gas fell to decade-low prices. “The economics obviously fall off when you look at those comparisons and what we could sell the power for going forward,” Ragan said.

For now, however, it doesn’t make financial sense to build any kind of new power plant in Texas, Ragan said.

Energy producers say they have faced a financial squeeze from the competitive electricity market in the state’s deregulated grid.

That has left companies with little incentive to invest billions of dollars in new power plants when they can benefit from higher prices for a limited power supply in the market.

The problem has prompted debate in Austin over whether to change rules to offer more financial incentive for companies to build power plants, possibly involving payments to companies for simply owning generation capacity.

NRG is seeking permits to build two large natural gas units, each with a capacity of more than 800 megawatts, but has no plans to build them until it makes financial sense, Ragan said.

“Right now, where power prices are and where the forward power prices are, the margin that we can generate is not significant enough for us to move forward with building new generation, but we do want to have these permits in hand,” he said.

Without the new unit, NRG’s existing Limestone electric generating station has the capacity to produce 1,700 megawatts, enough to supply 1 million households.

Despite the planned unit’s continued opposition from some environmentalists, including the Sierra Club, NRG was able to gain the support of the Environmental Defense Fund and the Texas Clean Air Cities Coalition because of planned emissions upgrades and improvements that would have accompanied construction.

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